All Forum Posts by: Justin Egge

@John Hanson Exactly, I've found .65 - .75 the working ratio for my model. Think of it in terms of buying a car:  slightly used car (less than 20K miles) vs. a well-used car. The well-used car is going to nickel and dime you month after month. In this analogy, the well-used car maps to the 1-2% rule properties. They sound great and often work well for large outfits that have support staff (repair-men, office admins, trade contractors, etc.) to manage the upkeep and tenants, but for smaller (1-man) shops, it represents a headache and consistent cash outlays. As others have mentioned, the capex and general expenses will be far higher and more frequent. 

The slightly used car maps closer to the model I'm representing. You're going to put out more cash up front to get it (down payment), but the capex and upkeep expenses will be fewer because the property is in a better area, in better repair-state, and will be better treated by residents. In these high-priced options, you also usually get longer-term residents; 2-4 years being typical. This increases your profit margin both from turn-over costs, as well as long-term tenants take better care of properties.

It comes down to the type of life you want. Do you want to manage a lot of properties, and/or manage employee's? If so, the 1/2% rule might be your thing and you'll need to scrap it out with other investors competing here. If you want a simpler model that you can more easily self-run, and have far less investor-competition, you may have to reconsider. As an example, I interact with my tenants usually once a month. It's very low overhead, and that makes it worth it for me. Picking up higher-cashflow properties might make more money, but it brings a lot of calls/headache's/time I don't want to deal with. Once your SFR are paid off, 2K/month (less taxes + insurance + upkeep) is a good pay day when there's 4 of them.

Big disclaimer: I don't adhere to the 'rules' often preached on BP. I prefer the perspective of: a 'deal' is the transaction that fits your model (read: end-game), regardless of it's conformity or lack-thereof to a metric. 

That said, I spent 7+ years trying to apply these rules in MSP and always struck out. When I did find a property that aligned, it was always in a rough part of town with a rental clientele I wasn't comfortable working with. Not to mention the time required to find the options. These metrics, in my opinion, are geared for mass growth acquisitions, scaling quickly, and likely dumping quickly when the sponge is dry. 

My approach is different - buy and hold 4-5 SFR, pay them off, self manage, and retire from corporate 20 years early. No empires, planes, large employee staffs, etc. Just freedom, but I also have a family and am not willing to put in 80-hr weeks to do more. This means I always pay market-rates, but the homes are solid, take little to make rent-ready, and the clientele/renters are great (if vetted well).

As for 'do nothing until prices come down' - it's a 50/50. My last two purchased were in 2017 and 2019, and they've appreciated ~55K since. Both times I sat for two years waiting for the market to tank, got sick of waiting, and jumped in. You could sit on the sidelines or jump in - either have pros and cons. After all the waiting, I learned to put my money down. After a couple years the principal pay-down alone offsets most losses you'd see anyway. Two cents: always put 20% down to eliminate PMI and ensure you can survive downturns. Note: current politics and environmental factors (COVID, unemployment), make the gamble more risky today than last year. I'd wait until Feb 2021 myself.

Again, my approach appears to be different and may not suit you. Stating all this because it took years - and someone speaking this same message - for me to feel comfortable that my strategy was "acceptable", and maybe this statement will save you some headache. Envision the life you want, adopt a model that will support that life - then build it.
Best of luck!

@Sean Bush same here. Annoyance got too high and I let the Pro expire. There are better resources.

Thanks for sharing David. Your post sparked a question - is there a legal requirement to change out locks on turnover to protect the tenant, or is this simply a 'best practice'? Either way it's smart - just trying to educate more on liabilities where present. 

Adding a secondary to this thread: is it worth it to set up the property loan as a long term liability, and account for P&I payments against that liability/schedule? I asked my CPA and he wanted nothing to do with it, which felt fishy as I feel the books should balance. 

Morning All,

Branching off a previous thread (linked below), consideration of a multi-family strategy has come around again. Not my current focus (SFR), due to a few primary reasons:

• Higher transience = more issues
• Lower grade tenant, on average
• Market saturation 

That last item is the largest concern. With the long bull-run there has been an explosion of large multi-family construction all over the twin cities, inner city as well as suburbs. An example: Springs at Apple Valley, https://www.springsapartments.com/apartments/mn/ap...

Less focused on the location, and more the concept below. 

Two queries: 

• At what size do small multi-family structures begin to see competition from the larger outfits? (all sizes, only once you hit a 10-unit structure, etc.)
• For the current small multi-family investors, has the explosion of large multi-family impacted your strategies in recent years? If so, how?

Original thread: https://www.biggerpockets.com/forums/566/topics/63...

Thank you all for the insightful responses, and lending of experience. More to think on, but great points made. Fully appreciate you gents making the time to share your knowledge! 

I recently had a Q&A session with a respected Missouri investors with a 100+ units. One of the key statements that individual made in the conversation was "You're not even getting 1% of rents in your market, ...I would invest long distance if I were you." That statement has sparked a months long inspection of my local market, and I'm coming up with little to argue against the logic. 

To set the stage, I am focused on SFRs for the moment, 3B/1B minimum, southern suburbs, ideally in district 196, but stretching to the Farmington/Hastings area as needed. I prefer B-/B/B+ areas as the tenants are longer term and I have fewer issues. Goals: long term hold. So far, that means market prices of 225-300K (ARV).

While the 2% rule is subject to area, and a guidance bar only, I can't help but think I should be looking elsewhere based on rents being sub 1%, and the high capital required in acquisitions when compared to other markets (ex: 85K home). Two queries:

• Are other investors achieving a 1-2% rent return on their SFR Minnesota investments?
• If not, as it can vary from 0.5-2% based on market, what are you seeing?

Perhaps I need to alter my perspective, work harder, or be enlightened. Thoughts?

Adding to other comments, if self managing and investing beyond a half hour from home, make sure you have tradesmen contacts local to the rental. You might be surprised how quickly a rental can chafe due to a rough patch + distance. 

You don’t have to do the work to self manage, just the right, trustworthy people who can. 

If looking in the South Metro, look up Steve Collier, with Remax. Specializes in SFR investments and is a former tradesmen. Done a couple deals with him and have been very pleased.

Unfortunately not, but I will share who not to go with: Principles Building & Remodeling. 

Been trying to get a three-pane slider installed for more than 6 months. They didn't pull a permit, the workmanship is terrible, and it's still not done. Complete lack of professionalism.